Kluwer Law International / Iberian Lawyer Master Class: Red light, Orange light, Green light

Are arbitration disclosure guidelines
up to speed within a changing world?

There has been a wide-ranging debate in recent months within the international arbitration community regarding the extent to which current conflict and disclosure guidelines for arbitrators require revising. For some experts, the current principles are established and function satisfactorily, whilst for others they would benefit from reviewing and updating.

Over 30 leading members from the international arbitration community participated in a Master Class, hosted by Kluwer Law International and Iberian Lawyer, to discuss disclosure and conflicts of interest during the 2008 International Council for Commercial Arbitration (ICCA) Dublin Conference. David W. Rivkin of Debevoise & Plimpton chaired the discussion.

Uncertainty over disclosure

Participants began by discussing the uncertainty that some felt over whether or not to disclose potential conflicts of interest when being appointed as arbitrators. Juan Fernández-Armesto from Spain took the view: “Standards of disclosure are changing and, from a user’s perspective, you very frequently have occasions now where you do not know what you should disclose; in fact we now disclose things which we would not have disclosed a few years ago. It is only inevitable that these changes cause some kind of uncertainty.”

Juan Fernández-Armesto believed that the IBA rules, while helpful, do not generally produce a clear answer for difficult situations, for example where arbitrators, counsel or parties may overlap on parallel proceedings. He would personally welcome clearer and more precise guidelines from the arbitration institutions as well as an update of the IBA guidelines.

For Richard Naimark, of the American Arbitration Association’s International Centre for Dispute Resolution (AAAICDR), the current procedures regarding the independence of arbitrators work relatively well, particularly in institutional arbitrations. The issue is more the relationship between the legal community and the procedures, which he says is in a state of flux. “The fact that this issue is receiving more and more attention is not good for the arbitration community in the sense that disclosure issues have become over-magnified to the point of distortion”.

“One of the challenges is the proliferation of new guidelines and standards,” explained José Astigarraga of Astigarraga & Davis in Miami, a member of the IBA team that is reviewing their guidelines. The American Bar Association (ABA) and the Club Español de Arbitraje are also considering new guidelines.

Reasonableness test

Clifford J. Hendel, of Araoz & Rueda in Madrid, believed that another key issue was the extent to which disclosing a matter in good faith would automatically exclude an individual from being proposed by an arbitration institution to the parties.

Anne-Marie Whitesell, the former Secretary General of the International Chamber of Commerce (ICC) and now with Dechert in Paris, has recently published research on this issue.

“The current movement towards wider disclosure should not in any way limit the people who disclose from being appointed,” she believed, confirming that more than 75% of ICC arbitrators were party-appointed and, in most cases, the ICC Court approved arbitrators who had made disclosures.

However, with regard to Court-appointed arbitrators, the ICC prefers to choose arbitrators who do not present any problems of independence. Consequently, disclosure from an arbitrator nominated by the National Committee does tend to disqualify him or her from consideration without the parties being consulted. Anne-Marie emphasised, however, that the institutions have a duty to try and broaden the pools of arbitrators, which is another reason to avoid appointing existing ones with potentially conflicting interests.

When asked by David W. Rivkin if it would not be better if parties rather than members of the National Committee were able to decide on matters related to a minor disclosure, Jason Fry, the current ICC Secretary General responded that non-appointment happened only in a very small number of cases. ICC National Committee appointments were very limited and generally restricted to either the Chairman of the Tribunal or an arbitrator for a non-participating party. He said it was essential in both cases that the arbitrator be scrupulously “clean”. However, the Court might accept a qualified disclosure where the prospective arbitrator was, for a particular reason, the best-qualified person for the job.

Anne-Marie Whitesell pointed out that there remains a reasonableness threshold in the ICC’s “eyes of the parties” test and commented that the recent trend towards disclosure had led some arbitrators to disclose issues unnecessarily.

Let the parties decide

In light of this burden on prospective arbitrators, and the potential consequences of disclosing too much, the discussion inevitably turned to the issue of where the line should be drawn, and the different standards used by arbitral bodies.

Unlike the ICC, the AAA-ICDR advises arbitrators to disclose everything, without drawing artificial lines, and will then consult the parties to see whether there were any objections. Richard Naimark believed that the “feedback from parties is very instructive.”

The AAA-ICDR main approach in evaluating independence was a question of contact: was it direct, continuous, substantial, recent? However, he noted that other US institutions, like the ABA, were developing their own standards. For example, while the IBA has a three-year cut-off period for relations, the ABA takes a qualitative approach unrelated to any period of time.

David W Rivkin reiterated that the IBA Orange List had been designed simply to prompt disclosure, not to bar automatically the discloser from acting, whilst the IBA Green List had been put together to prevent over-disclosure.

Catherine Kessedjian, of the University of Paris II, was unsure about the IBA Green List. She preferred to disclose more rather than less, letting the parties decide what is relevant and noting that, in certain cases, parties might validly object to something from the ICC’s Green List.

Cultural approaches in different parts of the world make it impossible to prescribe a world-wide standard for disclosure, said Fali S. Nariman, former ICCA President, and the IBA Guidelines have caused him much disquiet simply because “impartiality” and “independence” are looked upon differently in different countries. However, he thinks it might be helpful to have a rule stating that, in determining what facts should be disclosed, an arbitrator should take into account all circumstances including the culture, substance, laws and practices of the country of the parties.

Bearing in mind these issues, Richard Naimark suggested that it might be helpful for institutions to put hypothetical examples to a round table of arbitrators and he acknowledged that further guidelines, perhaps similar to the research prepared by Anne-Marie Whitesell on behalf of the ICC, could be helpful. However, like other institutions, the AAA-ICDR was unlikely to take the approach of publishing individual decisions.

Some present found it difficult to reconcile the general consensus that it was better to disclose more rather than less (based on a subjective test) and let the parties decide what is relevant, with the ICC’s tendency to veto prospective ICC Court-appointed arbitrators who make qualified disclosures without consulting the parties. David W. Rivkin asked if it would be possible to amend the ICC or AAA Rules to allow the parties some input in these cases.

Jason Fry believed that with the move towards increasing disclosure, it was perhaps inevitable that the arbitration institutions would become more pragmatic in their approach. However, he reiterated that, even under a more flexible policy, a qualified disclosure was likely to be unacceptable in cases involving a non-participating party.

Duty of counsel and parties

Juan Fernández-Armesto put forward the alternative of making disclosures to institutions and then asking them to decide whether the disclosure was relevant. Anne-Marie Whitesell noted that, in practice, this could happen.

Johnny Veeder, of Essex Court Chambers, highlighted the duty of disclosure on parties and counsel, who generally have access to conflict search facilities and often know things about the case that arbitrators don’t. Arbitrators could find themselves conflicted on particular issues that they could not have known would be raised at the beginning of the arbitration. He suggested that it should be possible to remove Counsel who have failed to make appropriate disclosures.

Richard Naimark thought it was wrong to put the independence burden solely on the arbitrators; the responsibility lay equally with the parties. He commented: “It frequently bothers me that the equal burden on parties and not just

arbitrators to disclose early is not readily accepted.” He believed that there are a few, but growing number of cases where parties play a wait-and-see game with this, for instance, not searching for potential conflicts until a case appears not to be going well for them.

Grounds for appeal

If the issue of independence is not dealt with appropriately at the outset of the arbitration, parties may look to the court to overturn any arbitration award.

In some cases, parties fail to make such a disclosure so that they can wait and see whether the arbitration will go in their favour before playing the ‘independence’ card. Some believe that there should be a time limit for parties to raise the independence issue. Article 7(a) of the IBA Guidelines obliges the parties to disclose information regarding any direct or indirect relationship with the arbitrator as soon as it becomes aware of it.

“It is difficult to police this and know if a party has taken timely and sufficient steps,” Jason Fry believed. “If an ICC party raises an objection that could have been discovered using Google or law firm search facilities at the outset of the arbitration, this would not necessarily preclude the objection, but the ICC would take it into account in making its decision,” he said. Anne-Marie Whitesell noted cases where late challenges regarding information readily available on an arbitrator’s curriculum have been disallowed. Cristian Conejero, counsel to the ICC and now with Cuatrecasas in Paris, added that he has brought a replacement proceeding against an arbitrator who refused to disclose information that the ICC believed the parties should know.

David W Rivkin suggested that it might be helpful if institutional rules, as well as the IBA Guidelines, expressly prohibited objections regarding independence based on information that was or should have been available after a suitable search at the outset of the arbitration. Richard Naimark believed that this was an option that could be considered and which Jason Fry, on behalf of the ICC, did not rule it out.

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